Global supply chains are increasingly exposed to climate-related disruptions, revealing protection gaps in reinsurance and highlighting the need for greater adaptation, improved data and coordinated public-private governance, according to a recent report from the Stockholm Environment Institute (SEI).
Climate-related disruptions to international supply chains pose significant systemic risks. In Europe, for example, floods in Germany and Belgium in 2021 paralyzed logistics and manufacturing, while drought in southern Europe in 2022 led to reduced harvests and tight water supplies.
“Climate shocks are now driving supply chain shocks, cascading through interconnected networks rather than remaining isolated disasters,” said SEI Policy Fellow Dr. Mikael A. Mikaelson. “As localized extreme weather spreads across interdependent systems, they could quickly become global shortages and delays that threaten economic security.”
Insurance and reinsurance, the financial mechanisms that normally absorb these shocks, are being tested by increasingly complex, frequent and severe climate disasters. As insurers withdraw from high-risk areas and industries, the burden of losses increasingly shifts to public budgets, businesses and households.
Mikaelson added: “Climate risks are becoming systemic faster than the insurance system can adapt, and when losses can no longer be spread, insurance will stop working as designed.”
While innovative solutions such as parametric products, unexpected business interruption (CBI) insurance and resilience-related assessments provide useful tools, they remain limited in scope and reliability, the report said.
Insurance coverage remains narrowly focused on assets and direct losses, excluding slow-onset, indirect and societal-level climate risks. Climate-related impacts on human health and supply chain worker productivity are particularly underappreciated.
The report found that structural and technical limitations – including reliance on historical data, incomplete climate-adjusted models and fragmented risk metrics – undermine insurers’ ability to predict systemic risk. There is a clear need for unified standards and forward-looking probabilistic models.
Short-term underwriting cycles and annual repricing further limit insurers’ ability to support longer-term adaptation, as a focus on immediate solvency and profitability conflicts with the multi-decade nature of climate risks.
Furthermore, the current life and health insurance system is largely blind to the risks faced by the workforce in the supply chain, particularly for the actual exposed roles in agriculture, construction and logistics. Workers in such roles are often outside the formal insurance system, and even when insured, climate-related illnesses, lost productivity or mental health impacts are rarely recognized or compensated.
The report highlights that without significant changes in business models, regulation and public-private coordination, the industry risks destabilizing by amplifying systemic climate pressures.
“Insurance alone cannot manage systemic climate risk. Without stronger adaptive capacity, better data and coordinated public-private governance, risk transfer will increasingly fail where resilience is needed most,” Michaelson concluded.
